Rates of return of the German pay-as-you-go pension system

Schnabel, Reinhold

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URL:	https://ub-madoc.bib.uni-mannheim.de/2863
Additional URL:	http://citeseerx.ist.psu.edu/viewdoc/download?doi=...
URN:	urn:nbn:de:bsz:180-madoc-28633
Document Type:	Working paper
Year of publication:	1998
The title of a journal, publication series:	Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung
Volume:	98-56
Place of publication:	Mannheim
Publication language:	English
Institution:	School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series:	Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject:	330 Economics
Subject headings (SWD):	Deutschland , Rentenversicherung , Umlageverfahren , Rendite , Intergenerative Belastungsrechnung
Individual keywords (German):	Ökonomischer Anreiz
Abstract:	Due to population aging, contribution rates of the mandatory German pay-as-you-go pension system are expected to increase dramatically during the next decades. This paper estimates the impact on the expected returns of contributions for different cohorts. I show that rates of return for younger cohorts will be between zero and one percent, depending on the demographic and economic scenarios; for some demographic groups they become negative. The implicit tax rates reach levels of around two-thirds of contributions for the youngest cohorts. If decreasing returns reduce incentives for labor supply and system participation, the whole system may become unsustainable. Indeed, I find empirical evidence for a recent decline of voluntary contributions and for a substitution away from taxable employment.
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